Tuesday, February 22, 2005

Global 100

A consultancy organization based in Canada has published the Global 100 (2005), a list of 100 firms that rank high on an index of sustainability.

Before we rush to congratulate the winners, buy their products or invest in their shares, we first need to understand what the Global 100 organization means by sustainability.

The Global 100 are sustainable in the sense that they stand the best chance of being around in 100 years because of their demonstrated performance and strategic ability to manage the triple bottom line (society, environment, and economy). The definition of a “sustainable corporation” is a subject of considerable debate.

Then we ask whether this result matches our information from other sources. Compare with other evaluation schemes (such as FTSE4GOOD). Obviously we don't expect to get the same results from different schemes, but we might expect some level of consistency. (In football, it is very rare for one club to win every competition. But there is usually some correlation - a club that does well in one competition is likely to do reasonably well in the other competitions - and if it doesn't, we look for some special causal factor such as injury.)

Then we look at the companies that are on the list - and the companies that are not. For example, UK retailers Kingfisher, Marks and Spencer, and J. Sainsbury make the list, but not Tesco. This implies that Sainsburys has a better chance than Tesco of survival over the 100 years. Is this credible?

In similar vein, we have Hewlett Packard but not IBM; AT&T but not Vodafone.

The list also includes companies that many people dislike: weapons manufacturers, mining companies, oil majors and minors, drinks. These companies tend to be excluded from many lists on ethical or environmental grounds.

Finally, the list includes companies that have been very successful very recently, such as Cairn Energy, where it seems premature to predict long-term sustainability on the basis of short-term success.

How then is this list produced? I downloaded a document called IVA Methodology Long (pdf), in which I hoped to find a detailed checklist of the criteria and weightings. Instead, it was a short brochure with little useful detail. What I did notice, however, was that the method included interviews with executives. So there is an element of self-selection - lots of companies may simply have declined to participate in the exercise.

It seems as if at least three different notions of viability/sustainability have been put together here, using some formula that has not been published.
  • Short-term economic success
  • Long-term economic viability / robustness
  • Social / environmental responsibility
All of these notions of viability/sustainability are important. But an arbitrary and obscure combination of all three is practically meaningless.

What are the general lessons from looking at this study.
  1. Don't take an apparently simple measure or classification at face value. Ask critical questions. What exactly is this measuring? What does this outfit mean by the word "sustainability"?
  2. Don't take surveys at face value. How do they get their information? How do they calculate the score? How reliable is the result? How can we interpret the result?
  3. Don't assume that people (especially on the Internet) know what they are talking about. What makes these guys experts on sustainability anyway?
  4. Don't assume that people (especially on the Internet) are disinterested/impartial observers. Are these guys trying to sell consultancy to someone? Are they trying to flatter potential clients?

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